What Does Dead Stock Mean?
Ideally, you should be able to sell every item you purchase for your retail store. However, that's not the case, and items not sold over an extended period are called "dead stock."
Wholesale businesses lose more than $200,000 in profit because of dead stock. Even though this figure doesn't apply verbatim to a retail business, dead stock still causes considerable loss of money, opportunity, and inventory space.
Therefore, for retail entrepreneurs, this article answers questions like:
● What does dead stock mean?
● How can it harm your retail store?
● How can you get rid of it?
What Does Dead Stock Mean?
Dead stock is a collective term for inventory that has not been sold out and probably won't sell anymore in the future.
The items in the dead stock inventory are new, unused, and sitting on shelves for an extended period. The most likely case for dead stock not selling is a demand reduction.
Dead Stock vs. Excess Stock
It is important to note that there is a difference between dead stock and excess inventory.
For example, you have an excess inventory if you stock up on a hot-selling product for your retail business.
However, if you are sure the inventory on your shelves has little chance of selling, it becomes dead stock.
What Does Deadstock Mean?
It is easy to confuse two similar terms, "dead stock" and "deadstock," but there's a difference.
Deadstock refers to coveted collector or vintage products that are discontinued by the manufacturer. Even though these products are new and unused, they're unavailable in stores. Examples include old comic books, sneakers, or action figures.
Why Does Dead Stock Happen?
If you're a retail store owner, simply knowing the "dead stock" meaning is not enough.
Dead stock can be quite detrimental to your business. Therefore, to prevent it from occurring, it is necessary to understand what causes it in the first place. Here are some common reasons behind the formation of dead stock.
1. Overstocking
Sometimes, retail business owners overstock a product based on how quickly it is selling or how trendy it is at the moment. But trends can die out quickly, leaving excess inventory on your shelves.
The best way to avoid that is to purchase inventory to meet the demand of a set duration (like a month) and not more.
2. Poor-Quality Products
If a particular product batch is defective, customers will soon stop purchasing it.
Based on the manufacturer's terms and conditions, you may be able to return or replace these defective products.
Tip: You can also try selling them at a slashed price if the defect doesn't affect the product's functionality.
3. Highly Similar Products
Selling multiple products that are too similar can cause product cannibalization. It means most sales will result from one product instead of multiple products evenly.
4. Uninformed Inventory Forecasts
As a retail entrepreneur, you have to forecast demand before ordering inventory. Inaccurate inventory forecasting is a serious issue among many retailers.
If accurate data and intelligent analysis do not back up the forecasting, you may end up with a wrong estimation and dead stock.
5. Inadequate Marketing or Sales
A product may be popular and in demand but still not sell. Sometimes, your merchandising strategies might be to blame for such products.
For example, a substandard marketing/sales team may fail to communicate the qualities of your product effectively to the target market.
6. Overestimating Backorders
Backorders are out-of-stock products that will be delivered/sold to customers as soon as they're restocked.
As a new retail entrepreneur, you might overestimate the interest in such products because of backorders. You might order more than needed, and such products might eventually turn into dead stock.
7. Cancelled Orders
Cancelled orders can also turn into dead stock if the products are perishable or have gone out of trend. Efficient communication with customers and selling high-quality products can prevent that.
8. Long Lead Times
Lead time is the time it takes inventory to reach your warehouse from the supplier.
If the demand for that particular product reduces during this time, it may end up sitting on the shelves. Therefore, shorter lead times can prevent your retail store from dead stock.
Disadvantages of Dead Stock in Retailing
Dead stock is bad for your retail business for some crucial reasons. Here's what they are:
Dead Stock = Loss
Unsellable items that sit in your inventory incur a loss. Firstly, you cannot recoup their original price, and secondly, you can't sell them for profit as projected.
Hollow Inventory Cost
You're paying inventory costs, such as warehouse rent, insurance, etc., for an item you can't sell. It means you're paying for an unproductive item.
Holding Usable Space
Dead stock takes up inventory space that could be used for better-selling products.
Payroll Expenses
You'll also have to pay inventory managers and employees responsible for managing and documenting inventory, especially if they work hourly.
How to Get Rid of Dead Stock in Retail Stores?
After learning what does dead stock mean for a retail store business, the next thing is what to do with it?
Here are some tested ways to get rid of dead stock in your brick-and-mortar retail store and recover some costs.
1. Contact Suppliers
Dispose of dead stock by contacting suppliers and asking them how they can help. In some cases, you might get a full refund. In most cases, they may offer a credit or a partial refund.
2. Clearance Sales
A tested way to get rid of dead stock is to run highly discounted clearance sales. It might not recover the total cost, but it will recover some of it while freeing up space for more profitable products.
3. Donate Dead Stock
Donating dead stock might not recover costs, but it may make you eligible for a tax write-off. It also has a positive impression, which may inspire people to buy from you.
4. Try Alternative Sales Channels
Dead stock might not sell at your retail storefront, but you can try selling it on alternative channels like Amazon or eBay. Customers there may be willing to buy in bulk at wholesale prices.
5. Create Bundles with Selling Items
A smart way to get rid of dead stock is to bunch it up with fast-selling items in your store. You might be able to recover some costs while increasing sales for the other products as well.
6. Free Giveaways
Offering dead stock products as a freebie might sound counterproductive, but it could help you develop customer loyalty. The gesture will go a long way even though it won't yield immediate monetary returns.
Final Words
Simply learning "what does dead stock mean?" isn't enough. Inventory management is a science in and of itself, and could take years to learn and master.
It is unwise to learn it while running a business and experience losses that could destroy it. Therefore, the best way to sail these murky waters is to consult a retail business coach who understands the retail sector inside and out.
Such a coach can spot troubles before they occur and guide you smoothly through a path of least resistance. If you are curious about how coaching can uplift your retail business, hop on a short discovery call here!
